Wayne OLeary

Really Good Germans

Since World War II, everything German, with a few exceptions (Porches and Volkswagens, Oktoberfest and dark beer, Leica cameras), has been routinely denigrated and mocked by Americans. Germans, after all, produced Hitler and the Holocaust, which have been Hollywood mainstays for two generations and have reduced an advanced nation of 82 million to a jumble of stereotypes. We all know what Germans are: dull, stolid, humorless types with a taste for cruelty and authoritarianism, and a penchant for taking orders  the disparaged good Germans of the Third Reich.

What we especially know about Germans, through popular histories, films, and video depictions of the war (notably, the written works of Stephen Ambrose, movies like The Longest Day and such TV series as Hogans Heroes), is that they cant hold a candle to Americans when it comes to inventiveness, teamwork and individual initiative. Germans may be technically proficient, but they lack the imagination and organizational skills to challenge American leadership in the world. And, of course, together with the French, they represent Old Europe, the last line of resistance to the superior Anglo-Saxon system of economic globalization and its glorious free markets.

Yet, there is another German reality most Americans are only dimly aware of, one that belies treasured stereotypes and fondly held prejudices. It is the Germany of Otto von Bismarck, father of the modern social-welfare state, who introduced universal health insurance, workers compensation and old-age pensions as far back as the 1880s, a half-century before politicians on this side of the Atlantic considered doing the same thing. It is the Germany of Konrad Adenauer, Willy Brandt and Helmut Schmidt, who engineered the transformative postwar miracle that made their once-prostrate country the political and economic linchpin of Europe. And it is also the Germany of stakeholder capitalism, a unique approach to the relationship between capital and labor that offers lessons to an America groping for answers to its greatest economic crisis since the Great Depression.

Stakeholder capitalism (the social-market system is another name for it) simply means arranging economic life around the organizing principle that corporate governance should embody broad social values  that, as William Greider put it in his groundbreaking One World, Ready or Not, companies should reflect the stakeholder priorities of not just the stockholders, but of workers, managers, communities and allied suppliers as well.

Under the cooperative implementation of its governing social democrats and corporate elite, Greider recounted, Germanys stakeholder capitalism had by the 1990s produced the highest wages and shortest working hours among Western nations, an elaborate job training and retraining system, and generous unemployment-insurance benefits, while simultaneously generating healthy earnings for the business sector.

Although Germany has suffered along with every other country from the worldwide economic calamity of recent years, its system has made the impact far less harsh there than in the US. While American firms have been protecting their bottom lines by shedding domestic employees at a record pace, squeezing the wages and benefits of those who remain, closing regional facilities and leaving communities in the lurch, and generally behaving like Caribbean pirates on holiday, sober German firms have resisted the temptation to go rogue. Part of the reason is they dont want to, part of it is they dont need to, and part of it is they cant.

German companies dont want to savage their work forces and communities because they are largely family-owned, a status that engenders certain felt communal responsibilities. Call it noblesse oblige, but it works. Germanys closely held family firms value their workers and resist slashing payrolls except as a last resort; they prefer to exhaust other expedients first: reducing salaries, bonuses, investments, and dividends. In this respect, they are like family-run enterprises in other European countries, such as Portugal and Italy, which have likewise tried to hold on to workers during the Great Recession.

Germanys family-dominated firms also feel less pressure to act irresponsibly (speculating, assuming excessive debt, etc.) because they are not publicly held companies; only 170 of the largest 1,000 are listed on a stock exchange. Consequently, in contrast to Americas mostly public companies, they can take the long view: planning how to survive into the next generation rather than how to maximize profits to meet stockholders inflated expectations for the next quarter. Mass firings to cut costs, an American commonplace, rarely threaten German workers; unlike their transatlantic counterparts, they are not pawns in the great Wall Street game that makes going public the goal of every aspiring US business. This expansionary imperative, satisfied by regularly increasing the number of outside investors to raise more capital, subjects the publicly traded US company to constant demands for higher returns to boost stock prices.

German companies face a different imperative: satisfying government policymakers and their constituents, who insist the nations corporations maintain employment levels by retaining jobs wherever possible, even in hard times. Under stakeholder capitalism, half of the seats on corporate supervisory boards must be filled by labor representatives, and companies are required by law to act for the benefit of all interested parties. Management seems happy to comply. A 1995 study cited by The Economist magazine indicated that 83% of German managers felt their companies belonged to stakeholders rather than stockholders, and 60% believed saving jobs was more important than paying dividends. By contrast, 90% of American and British managers, in true free-market fashion, considered paying dividends to be far more important than job preservation, and 75% believed firms were responsible only to their shareholders.

How Germanys jobs-over-profits system works to preserve employment in recessionary 2009 is instructive. Struggling companies are encouraged by the government to cut hours rather than paid positions. If an employee agrees to the shorter hours, government subsidizes his wages to offset 60% of his lost income. One stunning result of this stakeholder approach is that Germanys official unemployment rate has risen less than half a percent from its pre-recession low, compared to nearly 5% for the US.

As Americans wrestle with the conundrum of yet another jobless recovery, this one worse than the last, it may be worthwhile to look overseas for some new ideas. Its clear the stock market, totally disconnected from the real economy, wont save us. But maybe we can learn something from those plodding, unimaginative German burghers.